The SEC charged Terraform Labs and CEO Do Kwon with fraud, claiming that they executed a "crypto asset securities fraud" worth billions of dollars.
According to the SEC, from April 2018 until the Terra/UST collapse in May 2022, Kwon and Terraform allegedly schemed to raise money from investors by selling an "inter-connected suite" of crypto asset securities that included securities-based swaps mimicking US equities and the "algorithmic stablecoin" UST.
UST was pegged at a 1-to-1 ratio with the US dollar. To create one new UST, one luna was burned or destroyed. This structure allowed arbitrage opportunities and helped maintain the peg, as users could always exchange one luna for UST and vice versa for a guaranteed price of $1, regardless of the market prices of either token.
However, the price of luna became unstable, which led to UST breaking its $1 peg, eventually causing both UST and LUNA to spiral down. The SEC claims that Kwon marketed these assets, including asset swaps and Terra, as profit-bearing securities and repeatedly claimed that the tokens would increase in value.
The SEC filed a complaint against Kwon and Terraform in the Southern District of New York's federal court for violating the Securities and Exchange Acts' registration and anti-fraud provisions. The SEC's enforcement director, Gurbir Grewal, stated that "Today's action holds the defendants accountable for their roles in Terra's collapse, which devastated both retail and institutional investors and sent shockwaves through the crypto markets."
Although the Terra co-founder's whereabouts are unknown, it is believed that he was in Serbia, according to South Korean intelligence. Kwon is wanted in South Korea for his involvement in the collapse of TerraUSD, and if I’m remembering things correctly, for allegedly stealing a bunch of money on his way out the door.